Don’t look now, but your employer may have already pulled 3 percent to 6 percent of your wages into the company 401(k) retirement plan.

Under the Pension Protection Act of 2006, the federal government made it easier for employers to automatically enroll workers in retirement plans — if those workers fail to do so voluntarily.

Workers may tell their employer to end the retirement investments. But the government figures that many people who were too preoccupied to sign up for retirement savings also won’t bother to stop retirement deductions the company set up for them.

The law and rules adopted under the law “will help many more workers and their families build a nest egg for a secure and comfortable retirement,” Labor Secretary Elaine Chao said in a recent announcement.

In that announcement, the Labor Department took the next step and gave employers guidelines for making investment choices for workers who fail to select investments of their own.

The rules are expected to increase retirement savings in 401(k)-type plans by $134 billion by 2034.

“It’s probably the most important, innovative regulation that’s been issued from the Pension Protection Act of 2006,” said Andrea Baroncelli, director of client services at Maul Capital Management in Las Vegas.

The Labor Department was concerned that many employers were investing the 401(k) money of automatic enrollees in money market accounts or stable value funds. Advisers consider these investments too conservative to be relied upon as the sole asset held for a long-term purpose such as retirement.

“This regulation will ensure that workers in qualified default alternatives are automatically invested in a mix of fixed income, (stock) and other assets appropriate for long-term retirement savings,” Assistant Labor Secretary Bradford Campbell said in a statement.

The new rules specify several ways an employer can make the selection.

The most popular appears to be target retirement or life-cycle funds based on when the employee is likely to retire. These mutual funds typically are aggressive with large percentages of stock for an employee who will not retire for decades. The funds slowly shift more money into conservative, fixed-income products as the worker approaches retirement.

The business also may designate a mix of investments that is suitable for employees as a whole, rather than as individuals. A balanced fund that includes both stocks and bonds is an example of this option.

The guidelines provide that an employer can push the workers’ money into a money market fund or stable value fund. Stable value funds generally offer higher interest than money market accounts and yield a fixed interest rate.

However, the Labor Department recommends that the employer keep the worker’s money in a money market account or stable value fund only for the first 120 days of participation.

Analysts consider money market funds and stable value funds too conservative to grow sufficiently for a long-term goal such as retirement.

“For long-term investments, stable value and money market funds accounts are not appropriate,” aid Pamela Hess, director of retirement research at Hewitt Associates, a human resources consulting firm based in Lincolnshire, Ill.

The new default investment options, she said, are “a great way for employees to go on auto-pilot and still meet their long-term goals.”

Hess praised Chao for refusing to go along with industry representatives who favored money market accounts and stable value funds as the default investment choice.

“This is a real shot in the arm to the American worker to encourage them to participate in their 401(k),” Baroncelli said.

Only about 30 percent of Americans are participating in 401(k) programs at work, Baronceilli said.

Even small businesses with several employees can establish 401(k) plans, she said.

Contact reporter John G. Edwards at or (702) 383-0420.




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